London's FTSE 100 drops on coronavirus cases, stronger pound

By Shashank Nayar

(Reuters) - British shares dropped on Tuesday as worries about increasing cases of COVID-19 and its impact on the economy coupled with a stronger pound overshadowed a set of upbeat earnings forecasts.

The FTSE 100 fell 0.5%, led by pharmaceutical and household stocks, with consumer goods group Unilever the biggest drag on the index.

Finance Minister Rishi Sunak said on Monday that the economy would get worse before it got better, with Britain in its third lockdown to contain the spread of COVID-19.

"Investors are definitely more cautious about the near term impact of the fresh lockdowns, but the market is better prepared to deal with it as opposed to the first lockdown last year," Michael Baker, an analyst at ETX Capital, said.

The pound jumped to a six-week high, weighing on the export-heavy index, as comments from Bank of England's Governor Andrew Bailey on negative interest rates dampened some expectations of sub-zero rates in Britain.

In a rare bright spot, home improvement retailer Kingfisher rose 1.8% to the top of the FTSE 100 after reporting strong trade across its markets.

E-commerce retailer The Hut Group gained 1% after saying it expects its 2021 revenue to be 30%-35% higher than 2020, underpinned by the acquisition of Dermstore.com and a surge in demand for its beauty products.

Gambling software maker Playtech jumped 4.3% after saying it expected its 2020 performance to be ahead of expectations, driven by its financial trading arm, and casino, poker, bingo and betting businesses.

However, British consumer spending fell in December at the fastest rate in six months, with pubs and restaurants hard hit by a resurgence of coronavirus cases, a survey showed.

(Reporting by Shashank Nayar in Bengaluru; Editing by Shailesh Kuber, Uttaresh.V and Alexander Smith)